Indonesia Can be a Model for Hub-and-Spoke Maritime Logistics
    Category: Maritime Economy By : Gopal R Read : 1167 Date : Tuesday, March 15, 2016 - 06:00:23

    Indonesia needs new growth strategies. As commodity prices have softened, Indonesia should look inward and boost domestic activity. Falling commodity prices are not yielding required returns on exports. Indonesia can also drive policies to add-value to commodities so they bring better returns, such as adding smelter capacity.

    With the setting up of ASEAN as an economic community, there are opportunities beyond Indonesia. To be effective in trading in the region, maritime is the key link and strength. Having a strong maritime network can help in capitalizing logistics advantages, which in turn can help optimize costs in such challenging times for the industry at large. With over one billion tonnes of freight handled by its ports, Indonesia is ideally positioned in the path to achieving maritime logistics excellence. But the country’s dispersed geographic structure may lead to an emphasis on too many ports beyond the critical hubs, and cripple the maritime logistics business.

    President Joko “Jokowi” Widodo’s “Pendulum Nusantara” concept is expected to build the capacities of key ports across the country, and thus provide better inter-island network linkage. With over 50% of the billion-tonne plus sea freight being inter-island freight, improving this connectivity is a high priority, especially to areas with limited connectivity.

    Key ports such as Tanjung Priok, Tanjung Perak, Tanjung Mas, Belawan and Makassar should be positioned with enhanced capacity as hubs, with spoke connectivity to smaller ports. The basic principle is achieving economies of scale with a key five to six ports as hubs. China is following this strategy, by rapidly implementing hub-and-spoke concepts with inland river ports as spoke-link from main ports such as Shanghai.

    The key to success is to implement the planned capacity enhancement and develop the maritime connectivity rapidly within Indonesia to become a model hub-and-spoke maritime logistics center in the region. The impact of such development can be sustainable growth and competitiveness for the local industry, and also benefit Indonesia’s economic growth.

    The key pitfall is to avoid the temptation of building smaller ports to support potential new locations. This can drain available funds, which would otherwise have enhanced capacities of the network’s key ports. Any new port development should be visualized with a three-year block development of the port’s hinterland, to substantiate the volumes. Investing without such a proper business case should be avoided.

    Maritime logistics has become great strength for countries when the basic idea of hinterland reach of each port in the network is expanded. This should be the guiding principle to build the hub-and-spoke network right, and potentially making Indonesia as a model for maritime logistics.